Informed in Five: “Capitalizing on Capabilities”

Capitalizing
on Capabilities by Dave Ulrich and Norm Smallwood, Harvard Business
Review, June 2004

The
most admired companies don’t stand out because of their structure or management
approach but because of their ‘organisational capabilities’: an ability to
innovate for example, or to respond to changing customer needs.

These
capabilities are the collective skills, abilities, and expertise of an
organisation and the outcome of investments in staffing, training,
compensation, communication and other human resources areas.

They
are more difficult for competitors to copy than capital market access, product
strategy or technology and explain why some companies have higher market
valuation than others despite having lower revenue and profits.

The
problem is that these organisational capabilities are difficult to measure. The
solution is to carry out a ‘capabilities audit’.

The
authors suggest a five-step process for the audit:

1. Determine which part of the
   business to audit.
2. Create the content of the
   audit.
3. Gather data from multiple
   groups on current and desired capabilities.
4. Synthesise the data to
   identify the most critical capabilities requiring managerial attention.
5. Put together an action plan
   with clear steps to take and measures to monitor, and assign a team to the
   job of delivering on the critical capabilities.

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